IRS To Begin New Program Focused on Identity Theft This Fall

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WASHINGTON -- Thousands of people each year send in their income taxes only to be told by the Internal Revenue Service that they have already filed.

It is not a welcome surprise. It is identity theft.

In testimony Thursday to the Senate Finance Committee, Russell George, Treasury Department inspector general for tax administration, said there are two types of taxpayer identity theft.

In one, someone files a return under a stolen name and Social Security number to steal the refund. In another scenario, someone steals a Social Security number as an employee and the income taxes are assigned to the wrong person.

Sen. Max Baucus, D-Mont., noted that springtime is tax time, when taxpayers do not enjoy financial surprises. He said some victims of identity theft learn about the fraud quickly. Others have no idea they're being victimized and the discovery process takes years.

A Federal Trade Commission report to the committee in 2006 indicated that the number of identity-theft victims had almost tripled from 18,000 in 2002, Baucus said.

IRS Commissioner Douglas H. Shulman, who took office March 24, testified that the IRS has changed the way identity-theft cases are recognized and handled in the last few years. He said there have been more cases, but there's also been an increase in reporting. Because false identity eludes the system, it is hard to know exactly how prevalent it is.

Rebecca Spencer, who owns and manages a tax-filing service in Billings, Mont., told the panel that one of her longtime clients, a struggling single mother of two, tried to file early and learned that someone had already filed under her name.

"My client, of course, was in tears and, not knowing who to call, I started with the IRS Criminal Investigation 800 number" and reached a recording, Spencer said. After a series of additional calls and waits, she was told the client would need to file a paper return.

Ten days after Spencer and her client notified the IRS of the identity theft, the agency released the tax refund to the thief. It was only because Spencer notified the bank -- not because of IRS actions -- that the thief was unable to receive the money, Spencer said.

"Anyone with a little prior planning can take a laptop into a cyber-cafe with a stolen Social Security card and an employer identification number and file a United States income-tax return," Spencer said.

Nina E. Olson, the IRS' national taxpayer advocate, testified that in these cases the IRS assigns new numbers to the two taxpayers who are filing under one Social Security number. Because of the confusing numbers, bureaucratic language and poor IRS communication, many taxpayers have difficulties overcoming identity theft, Olson said.

Sen. Ken Salazar, D-Colo., asked Shulman what the IRS intends to do to stop identity theft.

After apologizing to Spencer's client, Shulman said his agency walks a fine line between getting refunds out quickly and taking enough time to ensure that they go to the proper people.

The IRS will begin a new program focused on identity theft in the fall. The agency will train specialists, who would be able to resolve the types of issues Spencer and her client faced, Shulman said.

Salazar asked if the specialists would be available in person by phone, "as opposed to this land-of-no-response."

In the coming months, Shulman said, there will be a new Web site and an 800 number, where if "you say the word 'identity theft,' you'll be sent to a person trained to deal with identity-theft victims."

Some thefts may originate within the IRS.

Most IRS employees and contractors have daily access to taxpayers' personal information, inspector general George said, and know the system well enough to do more harm.

Employees work on laptops with sensitive data and regularly take the computers outside IRS offices, George said. He told the committee that the agency needs a unified data security plan.

Shulman agreed and said the new system will include a tracking process to mark cases as identity-theft cases.

Consequences to taxpayers of identity theft extend beyond the loss of a refund.

Olson said victims face annual problems proving their identity and are discouraged from fighting for the benefits they're owed. Some IRS help lines are toll numbers, which deters callers.

"Basically, the IRS needs to think of the taxpayer when designing these procedures," she said.

The IRS Web site has information about identity theft and tax fraud with links to local offices:


For more info on IRS Scams See: Don't fall Victim to Bogus IRS E-mails or Telephone calls

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